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Thursday, December 15, 2011

Every day many strangers came to town, and among them one day came two swindlers. They let it be known they were weavers, and they said they could weave the most magnificent fabrics imaginable. Not only were their colors and patterns uncommonly fine, but clothes made of this cloth had a wonderful way of becoming invisible to anyone who was unfit for his office, or who was unusually stupid…

One of the more peculiar and puzzling responses to the New Economics Foundation's 21 Hours report was the charge that the authors committed a "lump-of-labour fallacy" – that their policy proposals were based on the assumption that the amount of work to be done is a fixed quantity. This complaint needs to be taken seriously, not because it has substance – it doesn't – but because of the extraordinary resilience of the fallacy myth despite its anachronism and incoherence.

The case for shorter working time is based on a cluster of core propositions, none of which are traceable to a "fixed amount of work":

the economy does not self-adjust to achieve "the best of all possible worlds";

there are physical constraints on the sustainable consumption of natural resources, including people's health (and, in the view of many environmental scientists, some of those limits are already being breached);

unemployment and overwork are not the "revealed preferences" or voluntary income/leisure choice of individuals; and, finally,

given a workforce in which many are currently unemployed or underemployed and others are overworked, policies that promote a more equitable distribution of working time can contribute to both social justice and ecological sustainability.

This is not ‘new economics’, but a rephrasing of the old lump-of-labour fallacy, the idea that the amount of work which is ‘required’ in an economy is somehow fixed and can be redistributed ‘justly’…

The case for work-sharing rests on a number of assumptions. Demand for working hours must be largely fixed; work must be easily divisible; and the work of one person must be a close substitute for the work of another person. When these conditions hold, an employer will be indifferent between employing A for 40 hours, or employing A and B for 20 hours each. But when the conditions are violated, then work-sharing imposes additional costs per working hour, and the quantity of hours demanded can decrease – the ‘scale effect’.

The second and third assumptions attributed by Niemietz to the case for work-sharing are gratuitous. Work is divisible and workers are substitutable for one another in principle. What Niemietz is indirectly getting at with his two extra assumptions is the idea that reducing the hours of work will necessarily increase labour costs. That conviction is based on the unstated assumption that current arrangements of working time are optimal or at least closer to optimal than would be a more evenly-distributed arrangement of hours. He presents no evidence to support his optimistic assessment of the status quo.

Niemietz's polemic thus boils down to two disconnected assertions about what advocates believe, and the optimality of current arrangements, for which he presents no evidence. As Daniel Kinderman (2001) has pointed out, the "fixed amount" in the generic fallacy claim could represent either a "floor" or a "ceiling." Niemietz relies on a "floor" explanation: higher labour costs will reduce the demand for labour below what it would otherwise be (the floor) . Other versions of the fallacy myth use a "ceiling" argument, in which advocates of shorter work time are alleged to neglect the long-term job creation prospects of economic growth.

There are numerous explanations of the supposed fallacy. Each begins with a plausible molehill of analysis and inflates it into a mountain of dogma. Tucked in behind that surfeit of rationales is a set of propositions that are typically left unstated in current polemics. Unlike the fallacy claim, these propositions are not conjecture; there are more than enough documented affirmations of them to piece together a representative profile – which turns out to be a mirror image of the case for work time reduction. They are the assumption that, if true (but only if true), would vindicate the claim that the case for work-sharing is based on the assumption of a fixed amount of work:

the economy does self-adjust to achieve the best of all possible worlds (or, if it doesn't, the proper role of governments and central banks is limited to stimulating growth and controlling inflation);

there are no physical constraints on the sustainable consumption of natural resources;

unemployment and overwork are the "revealed preferences" or income/leisure choice of individuals; and, finally,

any policy interference with the optimizing, self-adjusting process of market choice (other than stimulating growth and controlling inflation) can only make things worse.

3. How the fallacy myth inhibits movement toward a shorter working week and how it came to have such unearned credence

The movement for shorter hours of work played a pivotal role in the founding and growth of trade unionism in Europe and North America. Economic analysis related to those labour struggles also played an important role in displacing classical political economy and challenging the ideological hold of the panglossian doctrine of laissez-faire.

By the end of the 1930s, the 40-hour workweek had become a legislated standard in the United States. Labour unions and many economists welcomed the prospect of a continuing decline. So what happened? Two of the key elements in the interruption were the gradual downgrading and then abandonment by unions of the shorter work time strategy, and the adoption by economists of highly-abstract mathematical theory.

In 1887, the founding president of the American Federation of Labor, Samuel Gompers said, "The answer to all opponents to the reduction of the hours of labor could well be given in these words: 'That so long as there is one man who seeks employment and cannot obtain it, the hours of labor are too long.'" In the current period of high unemployment, shorter working time is absent from the AFL-CIO's Six-Point Agenda for Jobs. In the interim, unions were won over to the idea that full employment could be maintained by government programs to foster economic growth.

Early in the Twentieth Century, Sydney Chapman's theory of the hours of labour overturned the naïve view that output varied in direct proportion to hours worked. In the late 1920s and early 1930s, however economists noticed this insight made it difficult, if not impossible, to perform quantitative analysis on economic performance so they introduced a simplifying assumption that the given hours of work were optimal (Hicks 1932/1963, Robbins 1929). Inexplicably, the quantifiers "forgot" that this enabling assumption was contrary to economic theory and to a great deal of empirical observation. Many economists today simply assume that the given hours are optimal without acknowledging they're making a simplifying assumption.

Paul Samuelson, one of the pioneers of post-war mathematical theory in economics and of the "Keynesian-neoclassical synthesis", included a section in his iconic introductory textbook warning against the perils of committing the lump-of-labor fallacy. The demonstration of the alleged fallacy fills a pedagogical niche in introductory economics instruction because, as Paul Swaim (cited in Walker 2007) has observed, economists cannot avoid making abstract, ceteris paribus assumptions (like the simplifying assumption that the given hours of work are optimal, for instance).

The "fixed amount of work" assumption can be readily shown to be false on several grounds. Students who master the fallacy myth acquire a set piece with which they can impress audiences with their erudition and counter-intuitive cleverness. Unfortunately, instructors have failed to notice the lack of any demonstrated relationship between the fixed amount of work assumption and the policy arguments to which it is unjustly attributed. The pedagogy has backfired. Instead of becoming more aware of the pitfalls of their own orthodox abstractions, economists learn to disparage the imagined foibles of heretics.

Today, the lump-of-labor fallacy is invoked by Harvard professors and liberal Keynesians as unblinkingly as it is by 'free-market' think-tanks and Chicago School troglodytes. In a kind of Gresham's Law of economic theory, perpetual repetition of the fallacy polemic has marginalized (pun intended) genuine economic analysis of the hours of labour (see Walker 2000 and 2007).

The case for work time reduction does not rest on the assumption that there is "a fixed amount of work to be done." Whether the demand for labour increases, decreases or stays the same, the work can be divided up differently. Whether it would be advantageous to do so under some particular circumstances is an empirical question, not an a priori certainty or fallacy.

Furthermore, the division of labour has been a key tenet of economic thought since Adam Smith and his analysis of a pin factory. Exactly how easily work may be divided and how appropriate any given substitution is are design issues, which are, as Keynes would put it, "a matter of taste and experience…" This is true for any economic policy – not only work-sharing – and for individuals and firms no less than governments.

Even if some proponents of work time reduction did wrongly believe in a fixed demand for work, that still wouldn't invalidate their proposals. "If it were a good ground for rejecting an opinion that many persons entertain it for bad reasons," wrote A.C. Pigou (1913 pp. 39-40), after restating the standard criticisms of the supposed belief in a fixed amount of work, "there would, alas, be few current beliefs left standing!"

Self-adjusting economy and unlimited natural resources

The general idea of a self-adjusting economy can be found as early as 1701 in the pioneering anti-mercantilist treatise, Considerations upon the East-India Trade. It is also present in the 1780 pamphlet, Thoughts on the Use of Machines in the Cotton Manufacture, by the Lancashire magistrate, Dorning Rasbotham, whose prototype formulation of the fallacy claim was as follows:

There is, say they, a certain quantity of labour to be performed…. The principle itself is false. There is not a precise limited quantity of labour, beyond which there is no demand.

Rasbotham's rationale was that by bringing goods cheaper to market, the use of machines opens up new markets and creates new customers. "A cheap market will always be full of customers." People will indeed buy more at a lower price. But the devil is in the price elasticity of the demand, as Charles Davenant argued in 1699. A larger supply of goods sold at a lower price may fetch less total revenue than a smaller supply at a higher price.

This wouldn't matter, though, if all produced goods were exchanged for other produced goods. The lower aggregate income for one good would result in higher aggregates for some others. The difficulty comes about when one of the goods is money and when people, for whatever reason, choose to hoard money or speculate in non-productive assets rather than spend or invest it. This problem was popularized by Keynes as "the paradox of thrift." In a radio address from 1934, Keynes summarized the flaw in the idea of self-adjustment:

Now the school that believes in self-adjustment is, in fact, assuming that the rate of interest adjusts itself more or less automatically, so as to encourage, just the right amount of production of capital goods to keep our incomes at the maximum level... This is, however, pure assumption. There is no theoretical reason for believing it to be true. A very moderate amount of observation of the facts, unclouded by preconceptions, is sufficient to show that they do not bear it out [emphasis added].

But what if Keynes was wrong about the facts? In that case, it would be prudent to refer to W. Stanley Jevons, who in The Coal Question relied on the self-adjustment argument to explain his famous paradox concerning the consumption of energy resources:

The economy of labour effected by the introduction of new machinery, for the moment, throws labourers out of employment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened....

Now the same principles apply, with even greater force and distinctness, to the use of such a general agent as coal. It is the very economy of its use which leads to its extensive consumption (pp. 123-124).

The first paragraph is virtually a paraphrase of Rasbotham's argument. But the second directly challenges, on the exact same grounds, the idea that employment growth can be "uncoupled" from increasing energy consumption. In a world of finite resources, perpetual growth based on the expanding consumption of resources is unsustainable.

The attentive reader may notice that I have just painted not only the fallacy polemists but both sides into a corner! If Keynes was right about the empirical upset of the self-adjustment assumption, then maybe we don't have to worry about the implications of the Jevons paradox for a technological fix to energy resource, climate change and other environmental threats. If Jevons was right then there's not much we can do but sit back and enjoy the roller-coaster ride to the apocalypse. What to do? What to do?

Fortunately, I previously installed a ladder in this corner. The solution is not as simple as the paradox of thrift might suggest nor as intractable as the Jevons paradox implies. The untangling of both paradoxes requires an analysis of "external economies" or "social cost," which ranges well beyond the scope of refuting the lump-of-labour fallacy myth. I have sketched out an introduction to that analysis in "The problem with 'the problem of social cost,'"

Choice vs. coercion

The theme of 'choice versus coercion' implicit in the "Paternalism" in the title of Niemietz's article returns in his conclusion, where he states:

The trade-off people choose to make between leisure and consumption is an entirely private matter. It is nobody else’s business and there is no economic justification for government interference.

The income-leisure trade-off model Niemietz relies on as fact rather than hypothesis has been widely discredited as having been scientifically "refuted by the evidence" (Pencavel 1986 p. 95). So is it a question, then, of data reliability and validity, rather than one of choice versus coercion? The early history of the lump-of-labour fallacy myth offers further 'data points' that speak eloquently to the latter issue.

The charge most frequently brought before magistrates in Lancashire during Dorning Rasbotham's tenure was for the offence of workers leaving the service of their masters, punishable by from one to three months imprisonment. Meanwhile conditions in the earliest factories, documented in a report to Rasbotham and his fellow justices, were such as to foster:

...the ready communication of contagion [of a virulent fever] to numbers crowded together; by the accession to its virulence from putrid effluvia; and by the injury done to young persons through confinement and too-long-continued labour: to which several evils the cotton mills have given occasion.

Fifty years later, conditions for the Manchester cotton workers were not appreciably better, judging from the account given by James Kay-Shuttleworth in The Moral and Physical Condition of the Working Classes Employed in the Cotton Manufacture in Manchester. Kay-Shuttleworth's friend and long time colleague, Edward Carleton Tufnell, was the author of the rabidly anti-union propaganda pamphlet, Character, Object and Effects of Trades Unions, which contained the earliest prototype of the fallacy polemic directed specifically against the agitation for the Ten-Hour Day.

After giving his account of the "innutritious qualities of the articles of diet [i.e., potatoes, oatmeal and 'bad' tea]" of the cotton workers, Kay-Shuttleworth summarized their living and working conditions:

…the population nourished on this aliment is crowded into one dense mass, in cottages separated by narrow, unpaved, and almost pestilential streets, in an atmosphere loaded with the smoke and exhalations of a large manufacturing city. The operatives are congregated in rooms and workshops during twelve hours in the day, in an enervating, heated atmosphere, which is frequently loaded with dust or filaments of cotton, or impure from constant respiration, or from other causes… They are drudges who watch the movements, and assist the operations, of a mighty material force, which toils with an energy ever unconscious of fatigue.

These are the conditions that spawned the trade unions whose aims and very existence Mr. Tufnell strived diligently to thwart and suppress. The form of that suppression extended to the sentencing of seven years transportation to Australia imposed in 1834 by Tufnell's political confederates on six union leaders – the Tolpuddle Martyrs – for the 'crime' of swearing an oath of union solidarity.

So the "classical liberal" choice for factory workers in the 1780s was not so much between income or leisure as between prison or disease (and possibly death) resulting from appalling working conditions. Fifty years later they had the additional option of transportation to the ends of the earth for joining a union. That is the context in which the lump-of-labour fallacy polemic emerged. The polemicists were not at all opposed to government interference when it was aimed firmly at keeping workers in their place.

The originators of the fallacy claim, Rasbotham and Tufnell, were not outliers. Their utterances and activities were typical of the anti-union, anti-Factory Acts, anti-Eight Hour day, fixed-amount-of work fallacy polemicists of the Nineteenth Century and early 1900s.

They tell us sometimes that if we had only kept quiet, all these desirable things would have come about of themselves. I am reminded of the Greek clown who, having seen an archer bring down a flying bird, remarked, sagely: 'You might have saved your arrow, for the bird anyway would have been killed by the fall.' – Elizabeth Cady Stanton

So how does an archaic, incoherent and unauthenticated textbook homily succeed in discrediting contemporary efforts to move towards a shorter working week? As with the "magnificent fabric" in the story of the Emperor's new clothes, the counterintuitive, esoteric subtlety of the fallacy is said to be invisible to fools. The real message of the fallacy claim is "this is an issue of such dazzling complexity that it can only be comprehended by mathematically-rigorous adepts (and 'free-market' think-tank snake-oil salesmen). Keep your mouths shut and your noses to the grindstones, you fools. We're in charge here!"

Davenant, Charles, (1699) "An essay upon the probable methods of making people gainers in the balance of trade." In The political and commercial works of that celebrated writer Charles D'Avenant, Volume 2. London, 1771. The Making of the Modern World. Web.

Fisher, George. (1995) "The Birth of the Prison Retold." The Yale Law Journal 104, 6. 1235-1324.

Hicks, J.R. (1932/1963) The Theory of Wages, London: Macmillan.

Jevons, William Stanley. (1866) The Coal Question. 2nd Ed. London: MacMillan & Co.
Kay-Shuttleworth, James Phillips. (1832) The Moral and Physical Condition of the Working Classes Employed in the Cotton Manufacture in Manchester.

Keynes, John Maynard, (1934) "Is the Economic System Self-Adjusting." BBC radio address. Reprinted in The Nebraska Journal of Economics and Business. 2, 2, 11-15.

Kinderman, Daniel (2001) The Janus Faced Nature of Working Time Reduction: Between Rationalization Whip and Instrument for Social Justice, Progressive Economics Forum student essay contest winner.

Martin, Henri. (1701) Considerations upon the East-India Trade. London: The Making of the Modern World. Web.

Abstract of "Why Economists Dislike a Lump of Labor: The lump-of-labor fallacy has been called one of the “best known fallacies in economics.” It is widely cited in disparagement of policies for reducing the standard hours of work, yet the authenticity of the fallacy claim is questionable, and explanations of it are inconsistent and contradictory. This article discusses recent occurrences of the fallacy claim and investigates anomalies in the claim and its history. S.J. Chapman's coherent and formerly highly regarded theory of the hours of labor is reviewed, and it is shown how that theory could lend credence to the job-creating potentiality of shorter working time policies. It concludes that substituting a dubious fallacy claim for an authentic economic theory may have obstructed fruitful dialogue about working time and the appropriate policies for regulating it.

About Me

Sandwichman makes pop-up books, teaches Labour Studies at SFU, used to work in a co-op grocery store and writes on working time, labour history and the history of economic thought. He has recently completed the manuscript, Jobs, Liberty and the Bottom Line.